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A magic moment for T2 shares

Lucy Battersby

HUNDREDS of thousands of investors who bought the second instalment of the Telstra float - the so-called T2 shares - are on the verge of having their shares break even for the first time in more than a decade after the telco breached the $4 barrier yesterday.

Telstra is enjoying a resurgent share price and has outperformed the broader market by 45 per cent in the past year thanks to a strong yield, regulatory certainty and a lucrative deal with government-owned NBN Co.

Its shares closed at $3.98 yesterday but did trade at $4 for about 30 minutes in the early afternoon, the first time in four years. The company is due to release its 2011-12 results on Thursday week and analysts expect to see strong growth in mobile customers, which is needed to offset continuing declines in revenue from fixed-line telephones.

Telstra yesterday announced that former News Ltd executive John Allan had been appointed chief executive of the struggling directories division, Sensis, after the departure of Bruce Akhurst in May. Sensis is expected to lose money until online advertising replaces a decline in printed Yellow Pages advertising.

Mr Allan is the latest in a series of appointments to Telstra's media division. He will report to Telstra media boss Rick Ellis, who has been overhauling the telco's media strategy since his arrival in January, after a stint as chief executive of Television New Zealand.

Small investors, who took part in the T2 sale in 1999, are close to shedding a psychological bugbear. They paid $7.40 for each share across two instalments. Unfortunately this was just months before the dotcom bubble burst in the US in early 2000 and the shares plunged below $7.

But over the years those T2 shareholders have received about $3.36 in dividends, which means they could sell their 12-year-old investment at about $4.05 and recoup their $7.40.

Of course, there is no certainty that shares will creep higher than $4, with analysts setting an average target price of $3.61.

Peter Quinton, director of research at Bell Potter Securities, has a $4 target price and said Telstra was now fully valued. He will reconsider his ''buy'' rating once Telstra announces its full-year results.

''Telstra has outperformed the All Ordinaries by 45 per cent over the last 12 months. It really is quite notable,'' Mr Quinton said.

It is yielding 7 per cent, well above the market average, and Mr Quinton expects to see its earnings per share grow 11 per cent while the rest of the market grows by just 6 per cent.

But he believes this is close to the end of Telstra's run, with no sign that shareholders will receive a special or increased dividend from the NBN Co deal over the next 12 months.

''It has had a fantastic run and it is either at its valuation or past it. I am now cautious about Telstra,'' Mr Quinton said.